Standard & Poor's last week acknowledged its concern with an Italian Supreme Court ruling that permitted a liquidator to terminate performing translativo leases, though the rating agency is not planning to take immediate action on existing securitizations.
S&P acknowledged that prior to this ruling, most believed an insolvency officer of a lessor did not have the right (or the incentive) to terminate leases of a translativo nature in the event the lessor became insolvent. Ian Bell at S&P stated that, under this assumption, S&P was able to assign the highest rating possible to lease securitizations. The implication of the recent ruling will pressure the rating agency's approach to Italian leases.
Nevertheless, S&P opted last week to sit tight on any ratings action, following an announcement from the Italian Ministry of Economy that it is planning to prepare an amendment for introduction in the next state budget that will exempt translativo leases from liquidator cancellation in the event of a lease company insolvency. S&P expects the amendment to be proposed over the next few days. The budget will be voted on in December, and market sources expect the amendment will meet no resistance.
Concerning the possible amendment, "There has already been an increase in secondary trading of lease paper, and spreads are recovering from their five to 10 basis point widening on triple-A tranches," reported Chris Ames at BNP Paribas. "We don't expect upgrades to any great extent; however, since Moody's [Investors Service] has always said that they credit-enhance for bankruptcy liquidation risk, if that risk is now fully removed, they may might want to revisit their ratings, particularly for lower-rated tranches."